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The growing market for NFTs (Non-Fungible Tokens) is upsetting the arts, music, and finance sectors.This particular tool has quickly become the next big device in cryptocurrency's crossover out of vague e-wallet dealings and into the more public cultural web domain. 

Related articles: New frontiers in the art market: Christie's and crypto art - Everything you need to know about art tokenization - Is art a good investment?

Before delving into this topic, let’s introduce the context in which they are involved, that is Blockchain.

This latter technology can have multiple applications, most of them useful to facilitate the trade of art works and the art world in general.

Firstly, one of the possible applications consists in converting all coin’s payments to digital, introducing the use of cryptocurrency for the purchase and sale of art works. (Ex: Biddable, generated by Codex).

Secondly, the use of blockchain technology concerns smart contracts which consist of the "translation" or "transposition" into code of a contract in order to automatically verify the fulfilment of certain conditions (control of basic data of the contract) and to automatically perform actions (or give instructions so that certain actions can be performed) when the conditions determined between the parties are reached and verified. In other words, the smart contract is based on a code that "reads" both the clauses that have been agreed and the operating conditions under which the agreed conditions must occur and automatically performs itself when the data referred to the actual situations correspond to the data referred to the agreed conditions and clauses.

 

Courtesy of Julius Baer.

 

Having said that, let’s focus on our main topic of interest, tokenization of art works. With regard to this, it is necessary to point out that, commonly, the tokenization consists in the process of converting a right on a good (usually owned) into a token, a digital information, which is then issued on a blockchain platform for exchange between users. The tokens can be of three types:

1. Class 1 tokens - utility tokens: they are virtual coins that do not grant rights against a third party and can be freely exchanged.

2. Class 2 tokens - security tokens: they confer to the owners a series of rights exercisable against third parties, which can be associated to credit instruments and can be used to access services, for future payments or even as an asset representative of the right of ownership on specific goods.

3. Class 3 tokens: they confer both property rights and ancillary rights such as voting rights or economic rights.

In the artistic field, tokenization involves the fractionation of the ownership of art works, through the tool of tokens - these are normally security tokens, in many jurisdictions not yet regulated, in others (e.g., USA, Japan) considered only as financial instruments - which contain metadata (digital certificates of ownership on the asset). This exchange is regulated through smart contracts normally on blockchain Ethereum. The owner of the token becomes the owner of the digital ownership certificate. 

The advantages that tokenization can bring to the art sector are countless:

1. Democratization of art and consequent increase in potential buyers.

2. Liquidity for the owners of works.

3. Accessibility on investment performance and sales.

4. Diversification of the client portfolio.

5. Possible valorisation of public collections. 

6. Possible crowdfunding for young artists. 

7. Elimination of intermediation and transaction costs in buying and selling activities. 

8. Immutability of the security and the right deriving from it.

In the past two months the topic of Blockchain and NFT’s has gained the attention of the general public thanks to the renewed auction house Christie’s. This trend is likely to set other frontiers for the art market. On the mid of February, Christie’s staff declared that they would make its debut in the world of Blockchain offering a collage of Beeple “Everydays”. Bids started at $100, but finally it was auctioned off for $69 million. This event made Beeple the creator of the most expensive NFT art ever, and also the third most expensive of a living artist, following Jeff Koons and David Hockney.

 

Beeple, Everydays, Courtesy of the Guardian.

 

Cover image: 89 seconds Atomized. Courtesy of Snark.art

Written by Elena Parcianello

Stay Tuned on Kooness magazine for more exciting news from the artworld.

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